What: Shares of Starwood Hotels & Resorts Worldwide (NYSE:HOT) were looking hot last month, climbing 20% according to data from S&P Capital IQ. As the chart below shows, the bulk of the gains came on the company's third quarter earnings report and on merger rumors swirling late in October.

HOT Chart

HOT data by YCharts

So what: Starwood posted adjusted earnings per share of $0.74 in the quarter, better than estimates of $0.72 and up from $0.66 a year ago, while sales at all of its brands, which include Sheraton, Westin, and W Hotels, increased on a comparable-sales basis. For the full year, it sees a same-store sales increase of 4% to 5% and expects to spin off its vacation ownership business at the end of the year, selling the timeshare business to Interval Leisure Group.

What really seemed to drive up Starwood shares, however, were reports that the smaller hotel chain Hyatt Hotels Corp(NYSE:H) was interested in taking it over. According to The Wall Street Journal, Hyatt and at least three Chinese companies are interested in making a bid for Starwood, indicating the potential for the price to soar in a bidding war. Starwood Interim CEO Adam Aron said he could not offer any details on a potential merger pending a strategic review but expected to have more information within the next two months.

Now what: This would be the largest ever Chinese acquisition of an American brand, and the interest from China seems to confirm that Starwood has one of the strongest brand portfolios in the hotel industry with all seven chains growing organically. Considering the stock's reasonable valuation, it could be ripe for a takeover. There has been no further news on the matter since reports broke on October 28th, but a sale could soon go through, especially considering Aron's promise that the matter "has the company's highest attention" and "our progress is active and nearing a conclusion".

Jeremy Bowman has no position in any stocks mentioned. The Motley Fool recommends Hyatt Hotels. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.